Rep. Willis Hawley, a Republican from Oregon, and Sen. Reed Smoot, a Republican from Utah, believed they had found a solution to shield American businesses and farmers from overseas competition during the early stages of the Great Depression: tariffs.
Even though many economists cautioned that the levies would lead to retaliation tariffs from other nations, which is exactly what transpired, President Herbert Hoover signed the Smoot-Hawley Tariff Act in 1930. It was not until World War II that the U.S. economy emerged from a catastrophic financial catastrophe.
Smoot-Hawley is viewed by most historians as an error that exacerbated an already poor economic situation. However, President Donald Trump has emerged as a fresh defender of tariffs.
Similar to Trump, Hoover’s financial savvy played a major role in his election. He was an international mining engineer, investor, and humanitarian who came to work as a dynamic CEO in 1929, keen to encourage public-private partnerships and use the government’s levers to boost economic expansion.
Before calling a special session of Congress to better protect American farmers with “limited changes of the tariff,” he stated in his inaugural address that “anyone not only can be rich, but ought to be rich.”
The Great Depression instead befell the 31st president.
Trump claims that the United States was established on high import fees on goods from elsewhere and is now supporting his own sweeping tariffs that have sent world markets into a tailspin.
However, the president claims that when the federal income tax was established in 1913, the nation started to desert them. Then, “the Great Depression in 1929 brought everything to a very sudden end.” And if they had stuck to the tariff program, it would never have happened,” Trump stated last week when he unveiled his tariff plan.
“They tried to bring back tariffs to save our country, but it was gone,” he continued, referring to Smoot-Hawley. It had vanished. It was too late. It took years and years to recover from that depression; nothing could have been done.
But in reality, America’s history of high tariffs persisted well beyond 1913, and Trump’s interpretation of the causes of the Great Depression and the response of Hoover-era Washington to it is inaccurate.
According to Gary Richardson, a professor of economics at the University of California, Irvine, the United States’ continuous imposition of high tariffs “helped to shift industry here.” However, as the nation at the forefront of technology, we decided they were useless and got rid of them.
Richardson is also a former historian of the Federal Reserve System. “When we were at our most powerful, right after World War II, we forced a low tariff regime on most of the world because we thought it was to our benefit,” Richardson said. “We are switching back to something else now.”
Tariffs date to 1789
The first significant piece of legislation passed by Congress, the Tax Act of 1789, which George Washington signed into law, levied a 5% tax on a wide range of imported commodities into the United States. Since there was no federal income tax, the goal of the program was to safeguard American producers from overseas competition while simultaneously identifying ways to raise money for the government.
The United States enacted further tariffs in 1817 to protect home industry from potentially lower-priced imports, particularly textiles, after the War of 1812 hampered commerce with Great Britain.
For many years, high tariffs persisted, especially as the government sought to boost income and settle debt from the Civil War.
